Legal and Financial Implications of Operating an OBL or ASC

By: Bri Driggers and Juan Arredondo

In our final webinar of the Outpatient-Based Lab (OBL) series, Regents’ industry experts Raif Erim and Sheila Sferrella sat down with attorney Ken Davis to discuss the legal and financial implications of owning and operating an OBL or Ambulatory Surgery Center (ASC).

This session covered hot topics such as splitting Interventional Radiologists (IR) from a group, what issues to consider before enrolling with Medicare, and more.

Legal and Financial Implications To Consider For Operating an OBL or ASC

Things to consider before opening an OBL or ASC

As mentioned earlier in the series, the first step to opening an OBL or ASC is to determine what services the facility will provide. Potential owners and operators need to consider if the services are best performed in an OBL or ACS, how reimbursement will work, and how to ensure the facility complies with Stark Laws. You must carefully evaluate these factors to determine what steps to take next. It is crucial to familiarize yourself with state law and Certificate of Need (CON) considerations since these can vary drastically from state to state and can impact which services your facility can provide from a compliance standpoint. Additionally, state and local laws and regulations can determine what licenses or approvals your staff might need or if your facility can operate on a hybrid model. 

• ASCs are often subjected to a CON application process (if applicable). 
• OBLs are often not because they are an extension of the physician’s office.

 
Ownership structure plays an important role. Whether the doctors themselves or a separate entity led by nonphysicians own the facility can affect various regulatory nuances and may also necessitate a thorough understanding of provider agreements and restrictive covenants. Restrictive covenants are restrictions and limitations that determine where doctors practice medicine. It is important to ensure that these agreements do not hinder the establishment or operation of an OBL. During the initial setup process, you should also assess tax implications, financial obligations, future profits, and potential exit strategies.
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Issues to consider when splitting the IR physicians into a separate entity.

There are several critical issues to consider when contemplating separating IR physicians from an existing group and creating a separate entity. Before moving forward, assessing the exclusive agreement with the hospital and determining the impact on that relationship is critical. These include:

1. Financial implications
2. Potential Impacts on Clinical Care
3. Employee benefits

Syndicating Ownership and Safe Harbors

One aspect to address is the employment or partnership of vascular surgeons within a radiology group. Syndicating ownership is a process that offers other people, besides the owners, ownership of the entity responsible for operating the ASC. If offered to the radiologist, it has very few regulatory consequences, but you must exercise caution when a doctor receives money back as an owner.

There is also an exception called the “One-Third Rule,” though the exact proportion may differ between single- and multispecialty practices. This means an owner must perform at least 1/3 of their procedures in the ASC where they have ownership. If the facility is a multispecialty ASC, services must occur at the facility. This is one of the many requirements a facility must meet to be eligible for a safe harbor. Other ways a facility would disqualify itself from the benefits of a safe harbor (and can create significant compliance problems) include paying out disproportionate shares or allowing physicians to purchase large shares of the business for unreasonably low prices.

You can still syndicate ownership without meeting all the safe harbor requirements, but your risk of non-compliance will be higher. Safe harbor requirements are typically more stringent for ASCs than for OBLs, necessitating a thorough understanding of what can be accomplished within an ASC before you set up your facility.
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Can Vascular Surgeons Be Employed as Part of a Radiology Group?

Radiology groups can certainly employ vascular surgeons without changing the nature of the group. However, there will be special considerations. First, you must ensure that services are coded correctly. Next, if your group owns an imaging center, are you expecting the vascular surgeons to refer their patients to that imaging center? If the answer is yes, you must make the group in-office compliant under the Stark Law.

Though this is not typical among radiology practices, it can be done if the details are properly addressed. If you own an outside imaging center and are bringing in vascular surgeons as partners, you have two options: 

1. You can preclude them from ownership in the imaging center.
2. Allow them to have ownership of the imaging center but prohibit them from referring Medicare and other government beneficiaries to the facility.

What issues should a group consider before enrolling with Medicare?

Before enrolling with Medicare, it is essential to consider the services offered and identify specific CPT® codes your facility will use. Knowing the CPT® code for every service you plan to offer is essential to ensuring compliance with Stark Law. ASCs and OBLs have different regulations for syndicating ownership and require different analyses, particularly regarding the referral of services. Additionally, there must be a business justification and a comprehensive understanding of the cost-benefit ratio.

Conclusion
Healthcare providers seeking to own and operate an OBL or ASC must first navigate a complex set of legal and financial implications related to ownership structure, the Stark Law, syndicating ownership, safe harbors, and referrals. With help from the experienced team at Regents Health, you don’t have to do it alone. Schedule a call with one of our experts today for help ensuring compliance in your facility from day one.

About Ken Davis:
Our guest speaker, Ken Davis, is a partner at the Katten law firm based out of its Chicago, IL office. He specializes in healthcare corporate, transactional, and compliance matters. Ken Davis also has extensive experience representing diverse businesses and entrepreneurs as a resourceful problem-solver who structures innovative responses to accomplish client objectives.

Davis provides legal services for healthcare service providers and businesses at different stages. Whether it is structuring, development, growth, and ongoing operations of new businesses. He has years of experience in:

• Joint ventures
• Private Equity
• Mergers and acquisitions
• Debt-based and lease-hold financing
• Management and other service relationships
• Analysis of regulatory and reimbursement issues
• Initial structuring and business model development
• Networks and other arrangements aimed at integrating and improving the efficacy of the healthcare process.